Dairy farming business is growing by leaps and bounds in developing and developed countries. United States is the second largest producer in dairy production and has around 70,000 dairy farms. This business requires long man hours in which a typical day of a dairy farmer is from 4 a.m to 6:00 p.m where supervision and cleaning is important. Even understanding the current scenario where the dairy business is volatile because of high supply and low demand, has diverted the dairy farmers to move into other avenues.
While starting an animal husbandry business, it’s essential to evaluate land requirement wherein the farmer has to calculate land required in constructing shed, equipment storage and availability for raising fodder. While deciding on location other factors like constructing facilities for cows, having a source of water and proximity to the market are necessary points to be considered while purchasing a land. It’s always better to purchase land rather than lease it as the leasing costs can contribute to increased costs.
With advent of technology in dairy farming, equipment used in this business are different than they were for past couple of years. Machines for milking, sterilizing and milk storage tanks are available. It’s up to the owner to compare the cost of purchasing or leasing it. Also, automatizing the operations with the help of computers is preferred as it simplifies the task of record keeping.
After deciding on land and equipment requirement, another aspect is number of cows which the farmer wants to purchase. Deciding on the costs and cow breeds to be purchased will be helpful in understanding the financial costs involved. Starting with healthy cows will certainly help to recover long term costs. Also, while deciding on the numbers consider other factors like medical costs related to cows, feeding costs, cleaning and insemination costs too.
It’s very important to know about your competitor’s working. Getting into a business with the knowledge of competitor’s strength and weakness will help you to eliminate future problems. If you are starting a small business setup, it’s important to know your local competitors. This information can help you in customizing your strategic plan of exploiting your competitor’s weakness and converting it into your strength.
For any business that you start, you need to comply with the rules and regulations of the particular state. Similarly, while setting up your dairy business it’s important to find out about licensing rules, taxes levied on your business and laws about bottling the milk in your premises. Here, it’s better to consult an attorney who can guide you or browse the government website for further details. Also, try to get a ballpark figure for the costs involved in insuring your assets. Do understand the terms and conditions attached while insuring, as some costs might have to be borne by the owner.
Even though many want to start their independent venture but with excess costs and less return on their investment, franchising is a better option. Franchising helps the new dairy owner to gain experience and expert knowledge on the new technology used. Also, as the franchise is already an established name in the market, the dairy owner will be saved from the hassle of building a brand name. Also, the costs involved in starting a franchisee business is less as compared to starting a new business.
As costs of starting a firm is of prime importance, it’s necessary for the owner to understand the bifurcation of costs. Typically, an owner will face two types of costs: Fixed and Variable. Fixed are going to be constant and nothing can be done to reduce it but variable costs are going to vary according to the production. Examples of fixed costs like loan repayments, lease payments and insurance premium payments. Variable costs on the other hand include fodder, labor and utility bills. The key for earning profit is that the revenue should be more than costs. There are external factors like economic conditions which regulate the price of the milk. Like in recent times, the price of milk was low and this hurt the revenue of the milk producers. So, financial planning in terms of regulating the costs and increasing the revenue is always a better option.
After considering all these aspects, it’s important for the new owner to thoroughly research the business environment so as to start a successful dairy farm. As the dairy industry has already some big players which easily dominate the market supply, it’s more crucial for the new entrant to plan strategically for the future.